Consumer inflation expectations decline across horizons in January
Median consumer inflation expectations for the next 12 months decreased to 2.6 percent in January, according to the latest ECB Consumer Expectations Survey. Perceptions of past inflation also fell, while expectations for nominal income growth increased.
Inflation outlook softens, income expectations rise
In January, the median rate of perceived inflation over the previous 12 months decreased to 3.0 percent, down from 3.2 percent in December.
Median expectations for inflation over the next 12 months also declined by 0.2 percentage points to 2.6 percent.
Longer-term inflation expectations for five years ahead decreased slightly to 2.3 percent from 2.4 percent, while three-year expectations remained unchanged at 2.6 percent.
Consumers' nominal income growth expectations for the next 12 months increased to 1.2 percent in January, up from 1.1 percent in December.
This increase was primarily driven by respondents in the highest three income quintiles.
Expected nominal spending growth over the next 12 months, however, remained unchanged at 3.4 percent.
Labor market sentiment improves despite stagnant growth
Expectations for economic growth over the next 12 months remained unchanged at -1.1 percent in January, and unemployment rate expectations for 12 months ahead also held steady at 11.0 percent.
Despite this, quarterly data revealed a positive shift in labor market sentiment.
The expected probability of finding a job for unemployed respondents rose from 24.5 percent in October to 30.1 percent in January.
Similarly, employed respondents reported a decreased expected probability of job loss, declining to 8.2 percent from 8.5 percent.
Home price growth expectations increased slightly to 3.7 percent, while mortgage interest rate expectations remained unchanged at 4.7 percent.
Access to credit was perceived as tightening by a net percentage of households.
Mixed signals for policy makers
The latest survey presents a nuanced picture for the ECB, with falling short-term inflation expectations offering some comfort, yet persistent services inflation and tightening credit access remain concerns.
While consumer income expectations improved, the overall economic outlook and unemployment expectations remained stagnant, suggesting underlying caution.
This data reinforces the ECB's data-dependent stance, highlighting the need for careful monitoring of both inflation and real economy indicators before any policy shifts.